Q4 2025 Market Commentary & Year-End Review

As we look back on the final quarter of 2025 and the year as a whole, it already feels as though much has changed. Markets have moved on quickly, narratives have evolved, and the issues that dominated investor thinking at the start of last year now feel firmly in the rear-view mirror. Even so, the events of 2025 continue to shape the environment investors are navigating today.

Market and portfolio summary

UK
UK equities performed strongly over the year, supported by resilient corporate earnings and the internationally diversified nature of large-cap companies, despite a challenging domestic economic backdrop.

US
US markets delivered positive returns but experienced periods of heightened volatility, driven by policy uncertainty, trade tensions and a reassessment of long-held assumptions around market leadership.

Europe
European equities enjoyed a robust year, aided by monetary policy easing and improved sentiment across several economies, although bond markets were more challenged by fiscal concerns.

Asia & Emerging Markets
After lagging in previous years, emerging markets rebounded strongly in 2025, with performance supported by policy stimulus, technological leadership and improving investor confidence in select regions.

Alternatives
Alternatives played an important role in diversification, with precious metals standing out amid geopolitical and policy uncertainty, while infrastructure provided more stable, defensive returns.

Sustainability
Sustainability remained firmly on the agenda, though political and policy headwinds highlighted the complexities of the transition and the need for a pragmatic, long-term approach.

Performance
Against a volatile and evolving backdrop, our portfolios finished the year strongly, benefiting from global diversification, disciplined asset allocation and a focus on long-term fundamentals.

UK

UK equities delivered strong performance over the year, bolstered by resilient corporate earnings and an ongoing discount relative to the US. Despite a weak domestic backdrop of muted growth, stubborn inflation and mounting fiscal pressure, returns were unhindered, thanks to the international nature of the UK large-cap market. Companies with significant overseas revenues benefitted from a weaker pound and a strong global economy, allowing the FTSE 100 to reach multiple record highs.

Periods of volatility linked to global trade tensions and shifting US policy expectations proved short-lived. Uncertainty elsewhere benefitted the UK market, with investors rotating out of US equities towards cheaper, higher-yielding and more defensive assets. This theme persisted into the latter stages of the year, while more domestically focused mid-cap stocks lagged, reflecting their greater sensitivity to domestic economic pressures.

During Q4, the Autumn Budget reinforced concerns around taxation and fiscal sustainability, though UK equities remained relatively resilient, again highlighting the weak relationship between domestic economic conditions and market performance. The FTSE 100 and 250 returned 6.9% and 2.9% during Q4, and over the year returned 25.8% and 13% respectively.¹²³⁴

Bond markets faced a more challenging environment. Gilt yields rose sharply earlier in the year over concerns on inflation, fiscal credibility and the global macro-outlook, before easing back from their highs, albeit remaining elevated.

In Q4, gilt markets were particularly sensitive to fiscal announcements and economic data. The Autumn Budget, alongside the Bank of England’s cautious approach to policy easing, contributed to continued volatility, underscoring the delicate balance between supporting growth and maintaining investor confidence.

US

US equities delivered reasonable returns over the year despite some pullbacks. Early optimism around artificial intelligence was dented by the emergence of low-cost competitor DeepSeek in China, prompting a re-evaluation of US dominance in the sector and causing volatility among the Magnificent 7 mega-caps. This uncertainty was compounded by renewed trade tensions, with President Trump’s sweeping ‘Liberation Day’ tariff proposals raising concerns on cost-inflation, consumer pressure and earnings.

Despite this, the US market repeatedly demonstrated its ability to recover. Strong corporate earnings and a resilient economy drove a risk-on attitude, allowing major indices to rebound from mid-year selloffs. In Q4, equities pushed to new highs, supported by continued earnings strength, robust consumption and growing optimism that inflationary pressures would remain contained. While policy uncertainty persisted, investors appeared increasingly indifferent to political noise. The S&P 500 returned 2.8% over Q4 and 9.8% over the year in Sterling terms.⁵⁶

Bond markets experienced heightened volatility. Treasury yields fell sharply earlier in the year as growth concerns and tariff fears intensified, before retracing as economic data held firm. Fiscal developments, including the introduction of a wide-ranging tax and spending bill, raised questions around national debt sustainability. In Q4, The Federal Reserve continued its rate-cutting cycle, instilling some investor confidence, albeit amidst continued concerns over the future or Fed independence, as President Trump spent large parts of the year lambasting Chair Powell and the committee over what he sees as overly cautious policy. Treasury markets stabilised, yield-curve steepening reversed, and credit markets tightened, with investment-grade bonds outperforming on the back of resilient earnings and consumption.

Europe

It was a strong year for European equities in 2025, particularly in Sterling terms. The MSCI Europe Ex-UK index returned 6.2% in Q4, ending the year 27.2% up.⁷ Equity markets were supported by a significant easing of monetary policy, with the European Central Bank reducing the deposit facility rate from 2.75% to 2% over the course of the year.

Looking locally, Germany and France performed well, with their MSCI indices up 20.2% and 13.3% respectively in Euro terms.⁸ However, it was the southern economies that outperformed. Greece and Spain led the way, with their MSCI indices finishing the year up around 60% in Euro terms. Italy also had a strong year, returning 37.1%.⁹ Financials contributed significantly to this performance, which would have seemed unimaginable following the Eurozone debt crisis over a decade ago.¹⁰

We also saw member states adopt looser fiscal stances, particularly with regard to defence spending. Germany scrapped its “debt brake” rule and announced a €500 billion investment plan, while many other states requested use of the “escape clause” in a coordinated move to boost defence spending.¹¹

While these measures benefited many companies — particularly those in the defence and industrials sectors — sovereign bonds were negatively impacted as the sustainability of this spending was brought into question. Euro-denominated government bonds underperformed US Treasuries and UK Gilts. German Bunds delivered negative returns over the year, and French bonds struggled amidst political turmoil.

Asia & EM

After a relatively underwhelming 2024 compared with other regional indices, emerging markets bounced back in 2025, posting some of the strongest returns. While performance was broad-based across many emerging market and Asian countries, China, the largest constituent of the MSCI Emerging Markets Index, returned 31.4% in US dollar terms in 2025.¹²

Policies aimed at boosting growth, alongside loose monetary policy, created a more supportive environment for investment, while continued excitement and local advances in artificial intelligence helped lift large names such as Alibaba and Tencent. Although China’s markets struggled in the final quarter, the broader MSCI Emerging Market index ended the year 33.6% up in US Dollar terms.¹³

Elsewhere, Taiwan benefitted from similar themes. Shares in Taiwan Semiconductor Manufacturing Company (TSMC) climbed significantly over the year amid strong demand for chips. South Korea’s stock market posted its largest annual increase in 26 years,¹⁴ supported by government-led reforms aimed at improving corporate governance and shareholder protections.

While Indian markets finished the year in positive territory, they significantly underperformed global peers in 2025. In US Dollar terms, the MSCI India Index ended the year up 2.6%.¹⁵ This nevertheless marked the tenth consecutive year of positive returns for the Sensex and Nifty 50,¹⁶ with domestic investment remaining strong. However, foreign investors rotated away from India. Following a period of strong performance, valuations had become stretched, and when combined with underwhelming earnings and geopolitical tensions, investors sold roughly $18 million worth of shares over the year.¹⁷

Alternatives

Precious metals were a standout asset in 2025, benefitting from persistent geopolitical tensions, policy uncertainty and concerns around equity market valuations. Momentum accelerated towards year’s end, with gold rising sharply as investors increasingly sought diversification and effective hedges against macro and political risk. A weaker US dollar supported demand, while silver benefitted due to both its diversification benefits and industrial uses. All this saw Gold prices end the year around 65% higher than they started,¹⁸ with Silver posting an eye-watering 147% return.¹⁹

Energy markets were mixed. Oil prices remained under pressure for much of the year amid concerns over global growth and the potential impact of tariffs on demand, ending the year around 25% down in USD terms.

Listed infrastructure broadly provided modest but stable returns. Performance was driven by increased investor appetite for diversification and continued demand for long-term projects such as power generation, battery storage and AI-related infrastructure. While slowing interest rate cuts created some headwinds, infrastructure assets remained relatively resilient.

As a whole, alternatives played an important role in portfolio diversification during a year marked by volatility, policy uncertainty and shifting correlations across traditional asset classes.

Sustainability

Marking three decades of meetings, COP30 in Belém, Brazil took place amid continued climate and sustainability setbacks. The absence of a United States federal delegation was one of the main talking points, aligning with the Trump administration’s anti-climate change stance. While this was seen as disappointing, many US states, cities, and non-profits attended, showing that there is positive US engagement elsewhere.

In terms of outcomes, the Paris Agreement was strengthened through a call for humanity to unite in a Global Mutirão (collective effort) against climate change. Agreed by almost 200 countries, the measures include the tripling of adaptation finance, a new Gender and Climate Action Plan, and a Global Implementation Accelerator.²⁰ On a more negative note, COP30 failed to secure a binding agreement on the phasing out of fossil fuel use, which more than 80 countries had been pushing for. Ultimately, adamant objections from countries including Saudi Arabia, Russia, and India won out. As a result, while there were some positives around adaptation efforts and protection for more vulnerable countries, much was still left to be desired regarding the transition away from fossil fuels.

2025 was a double record-breaking year for the United Kingdom, with provisional Met Office figures showing it was both the warmest and sunniest year on record. The previous temperature record of 10.03 °C, set in 2022, was surpassed by an average temperature of 10.09 °C in 2025. The year also went down as the sunniest since the series began in 1910, recording 1,648.5 hours of sunshine across the UK. While it might not feel unusual throughout the year, the increasing frequency of these new records provides a clear indication of how the climate is changing.²¹

Performance

Our managed portfolio service celebrated its fifth anniversary in November, and the portfolios finished strongly in Q4, marking a positive year overall, particularly when viewed against the backdrop of events throughout the year (Liberation Day tariffs, inflation concerns, geopolitical risks, etc.) and the volatility they created. We made several changes at the start of 2025, with most of these proving beneficial as the year progressed.

We also benefited from our more global approach to asset allocation, which was rewarded as US exceptionalism came under increasing scrutiny. This marked a welcome shift, with returns available outside the familiar US technology names that have dominated markets in recent years. It would not be surprising if this dynamic continued, particularly if the early stages of 2026 are anything to go by.

Our conventional models outperformed our sustainable models; however, we believe this was largely due to exclusions from sectors that performed strongly. namely defence and commodities, rather than any underlying weakness in sustainable investments. Several of our preferred sustainable funds delivered stellar performance, which was encouraging, particularly during a period marked by policy reversals and a more sceptical stance toward sustainability from both governments and corporates. We will, of course, continue to monitor these developments, alongside the macroeconomic environment, to ensure we navigate 2026 positively.

1 Morningstar Direct: FTSE 100 TR GBP – 01/10/2025-31/12/2025

2 Morningstar Direct: FTSE 100 TR GBP – 01/01/2025-31/12/2025

3 Morningstar Direct: FTSE 250 TR GBP – 01/10/2025-31/12/2025

4 Morningstar Direct: FTSE 250 TR GBP – 01/01/2025-31/12/2025

5 Morningstar Direct: S&P 500 TR USD (GBP) – 01/10/2025-31/12/2025

6 Morningstar Direct: S&P 500 TR USD (GBP) – 01/01/2025-31/12/2025

7 Morningstar MSCI Europe Ex-UK TR GBP 01/01/2025 – 31/12/2025

8 Morningstar MSCI Germany/France TR EUR 01/01/2025 – 31/12/2025

9 Morningstar MSCI Greece/Italy/Spain TR EUR 01/01/2025 – 31/12/2025

10 https://www.hl.co.uk/funds/research-and-news/europe-funds-review-what-does-improving-european-growth-mean-for-markets?

11 https://ec.europa.eu/commission/presscorner/detail/en/ip_25_1121

12 Morningstar MSCI China TR USD 01/01/2025 – 31/12/2025